Erdogan Says Basci’s Paltry Turk Interest Rate Cut Is a JokeOnur Ant and Selcan Hacaoglu
Turkish Prime Minister Recep Tayyip Erdogan said the central bank’s decision to cut the key interest rate by a half percentage point last week is a joke and told policy makers to “shape up.”
The Ankara-based central bank, led by Governor Erdem Basci, on May 22 lowered Turkey’s benchmark rate by 50 basis points to 9.5 percent, after more than doubling it to 10 percent in January.
“When you’re increasing the rates, you do it by 5 percentage points,” Erdogan told reporters with him on a plane returning from Turkey over the weekend. “Now you’re reducing them by half of a percentage point. Are you kidding me?”
Turkey’s lira weakened today on bets that the remarks will increase pressure on policy makers to loosen monetary policy further and faster. After initially saying he would give the central bank’s policy time to work, Erdogan’s comments have since become more pointed.
The lira depreciated 0.3 percent to 2.0870 per U.S. dollar at 3 p.m. in Istanbul.
Erdogan said the central bank’s independence doesn’t forbid him from expressing his discontent.
“If I’m the prime minister of this country, I’ll speak my opinion,” Erdogan said, according to Sabah newspaper and other Turkish media. The central bank needs to “shape up soon,” he said.
Policy makers, in a statement accompanying their May 22 decision, said monetary policy will remain tight “until there is a significant improvement in the inflation outlook.”
Their strategy doesn’t sit well with Erdogan.
“I absolutely don’t like the central bank’s interest rate policies,” Erdogan said. “I see high interest rates as the most profound obstacle to investment in my country.”
Erdogan on April 4 had requested that the bank call another emergency meeting to undo the lending rate increases, saying that his party’s victory in March 30 local elections eliminated those concerns about political instability.
“Erdogan’s comments are clearly unhelpful for the bank as it tries to portray an image of a central bank which is independent,” Tim Ash, chief emerging-market economist at Standard Bank Plc, said by e-mail. “It must be very difficult for central bankers, however much they want to be seen to be independent in their decisions, to ignore such very strident commentary.”
Current rates have encouraged an inflow of “hot money” into equities rather than needed foreign direct investment, Erdogan said. The failure to slow inflation almost double the central bank’s 5 percent target has shown that high rates haven’t worked, Erdogan said.
A press officer in the prime minister’s Ankara office wasn’t immediately available for comment when called by Bloomberg. Another adviser in the same office didn’t answer calls to his mobile phone.